Commercial Companies Law 2015: Amend before July 2017 Dissolution

After years of speculation regarding an overhaul of commercial companies law in the UAE, Federal Law No. 2 of 2015 concerning Commercial Companies (“New CCL”) will come into force on 1 July 2015, replacing the existing Federal Law No. 8 of 1984 concerning Commercial Companies (“Old CCL”).

All companies are required to amend their existing memoranda and articles of association to reflect, and comply with, the changes introduced by the New CCL, and any companies that fail to make the requisite amendments by 30 June 2016 will be automatically dissolved.

The stated objective of the New CCL is to continue the UAE’s development into a global standard market and business environment and, in particular, raise levels of good corporate governance, protection of shareholders and promotion of social responsibility of companies.

Notable features of the New CCL include the recognition of the concept of holding companies, procedures for pledging shares, expert valuation of shares in kind (i.e. non-cash) and the requirement to rotate auditors (for Public Joint Stock Companies) every three years.

By introducing specific and strategic amendments, the New CCL contains a number of helpful improvements and modifications on the Old CCL. This article provides an overview of the key changes which will affect all types of companies operating in the UAE.

Key Changes for all UAE companies

New CCL
New provision explicitly invaliding any transfer of shares which may affect the minimum UAE national shareholding of 51% (article 10 of New CCL).

Old CCL
No provision explicitly invaliding any transfer of shares that will be in breach of the minimum UAE national shareholding of 51%. However, the Old CCL did prohibit any assignment of UAE national shareholding below the 51% threshold.

New CCL
A director / manager is a person authorized to manage the company and must preserve the rights and works of the company with care of a precise person (article 22 of the New CCL). In addition, any provision in the company’s memorandum and articles of association exempting any director / manager from personal liability (that he / she bears in his / her capacity as an officer) is voidable (article 24 of the New CCL).

New CCL
The Minister of Economy shall issue a regulation setting out the activities and functions of the Companies Registrar. In particular, the Companies Registrar shall supervise the trade name register (to avoid double registration), hold company records and enable concerned parties to inspect the relevant company records (articles 33 – 38 of New CCL).

New CCL
All companies are required to keep accounting records at their relevant head offices for a minimum period of five years (article 26 of New CCL). In addition, all companies shall apply international accounting standards and practices when preparing their relevant accounts in order to give a clear and accurate view of the profit and loss of the relevant companies.

New CCL
Generally, the New CCL shall not be applicable to free zone companies. However, if the laws of the free zone permit certain free zone companies to operate outside the relevant free zone (i.e. onshore), then the New CCL shall be applicable to such free zone companies (article 5 of New CCL).

New CCL
Companies exempt from the New CCL are: (a) companies excluded by resolution of the Federal Cabinet; (b) companies wholly owned by federal or local government and companies held in full by such companies (if a special provision to this effect is contained in the company’s memorandum and articles of association); and (c) companies operating in certain oil, gas or power sectors in which the federal or local government directly, or indirectly, holds 25 per cent. (if a special provision to this effect is contained in the company’s memorandum and articles of association) (article 4 of New CCL).

Old CCL
Only excluded companies by resolution of the Federal Cabinet and companies operating in certain oil, gas or power sectors.

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